Mercuria, a Swiss-headquartered energy and commodity trader, is suing the Baltic Exchange over losses caused by oil tanker pricing data that did not account for the effective closure of the Strait of Hormuz. The U.S.-Israeli war with Iran has left hundreds of ships and 20,000 seafarers stranded inside the Gulf and unable to sail through the vital chokepoints.
The Baltic Exchange, the world's top provider of benchmark shipping indices, continued to publish its benchmark crude tanker index, known as TD3C, despite the effective closure of the strait. This has resulted in ongoing extreme volatility in the pricing of TD3C, which no longer accurately or reliably represents the underlying market.
Mercuria claims that the exchange had breached its contractual and statutory duties by failing to suspend the benchmark. As a result, it caused Mercuria and its affiliates losses on physical freight contracts and settled freight derivative contracts benchmarked to TD3C.
The losses are estimated to be in the hundreds of millions of U.S. dollars, although they have yet to be quantified. The Baltic Exchange has declined to comment on the matter, citing sensitivity due to the conflict.
A Baltic member who wished to remain anonymous stated that their assessment was that the exchange had acted within its benchmark guidelines and regulations. However, this assessment does not necessarily reflect the views of all members or users of the exchange.
The Baltic Exchange has launched market consultations since the war began and also offered a back-up route to serve as an alternative benchmark. This move suggests that the exchange is taking steps to address the volatility in the TD3C pricing and mitigate its impact on the shipping industry.
The case highlights the importance of accurate benchmarking in the shipping industry, particularly during times of geopolitical uncertainty. It also underscores the need for market participants to be vigilant in monitoring changes in market conditions and adjusting their strategies accordingly.
Ultimately, the outcome of this case will have significant implications for the shipping industry, including freight forward agreements and derivatives markets. It will be interesting to see how the industry responds to the challenges posed by the ongoing conflict and whether the Baltic Exchange's actions will be deemed sufficient to mitigate these risks.
The case highlights the importance of accurate benchmarking in the shipping industry, particularly during times of geopolitical uncertainty.
